What Does the Q2 Earning Season Predict for Stocks?

The second quarter (Q2 2017) earnings season is already underway and this week ushers Wall Street into the heart of the earnings season. About 1000 U.S. firms will report their earnings this week – the earnings of individual firms will influence the direction of their stock price but the earnings from bellwether firms will influence sentiment in the general market as the bulls and bears fight for the pulse of the market.

Analysts expect the Q2 earnings season to be positive as they expect firms to deliver impressive outperformance on EPS and revenue estimates. However, we could see some tepid reaction to such earnings beat because analysts expect Q2 growth to be lighter in relation to previous quarters. For full year 2017, analysts expect total earnings for the S&P 500 index to be up +7.7% and they are forecasting a +4.0% increase in revenue.

This series looks at the earnings of some bellwether firms with a view to forecasting what you can expect from the markets in the next quarter and in FY 2017.

Alphabet Earnings

Alphabet Inc. (NASDAQ:GOOGL) reported Q2 2017 earnings on Monday July 24 after the U.S. market closed for the session. The firm reported earnings of $5.01 per share on revenue of $26 billion. Alphabet delivered strong earnings beat to outperform the consensus analysts’ estimate of $4.49 earnings per share. The firm also noted that its earnings would have been $7 per share and its revenue would have been much more than the reported $26 billion if not for a $.27 billion antitrust fine that it paid in the European Union.

In specific numbers, Alphabet reported that its costs of revenue (measuring how much it spends to keep its platform up and running) increased by 28%. The firm also noted that its costs were increasing faster than sales as it spends more money on high-growth project because search is moving to mobile. However, going forward, Alphabet’s Google expects to record $73.75 billion in net digital ad revenue worldwide. The shares of Alphabet declined 3% after the earnings report perhaps in response to rising costs but the shares of the stock are up 26% in the year-to-date period.

GM Earnings

General Motors Co. (NYSE:GM) reported its Q2 2017 earnings on Tuesday July 25 before the U.S. markets opened for the session. General Motors reported earnings of $1.89 per share to beat the consensus’ analyst estimate of $1.70 per share. The Q2 EPS also outperforms the earnings of $1.81 per share that was reported in the same quarter last year. The firm reported revenue of $37 billion to mark a 1.1% decline from the same quarter last year.

However, GM Chairman and CEO Mary Barra notes that “disciplined and relentless focus on improving our business performance led to a strong quarter and very solid first half of the year… We will continue transforming GM to capitalize on growth opportunities and deliver even more value for our shareholders.” Going forward, GM expects to maintain its forecast of delivering EPS of $6 to $6.50 for the year. The firm’s VP and CFO, Chuck Steven notes that “with an aggressive launch cadence still ahead this year, we are on track to meet our financial commitments for 2017.”

Luis Aureliano is a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks and emerging markets.

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